Monday, August 27, 2012

Tom Woods versus Bob Murphy

Bob Murphy takes Tom Woods to task for his reply to the nonsense spewing from Sandeep Jaitly. I don't get Murphy's first charge against Woods and the second charge, while holding a bit more meat, still appears to give Jaitly more credit than it appears he deserves.

In the interest of evenhandedness, let me say that there are two areas where I think Tom may have not quite gotten what Jaitly was saying. This doesn’t excuse the other jaw-droppers, such as Jaitly claiming Mises was less subjectivist than Menger. (!) But here are the two things I have in mind (and I’m quoting from Tom’s original critiqueof Jaitly):

Jaitly further contends that “Mises didn’t like to admit that interest was a market phenomenon. He sort of wanted to imply that it’s a natural consequence of not having a present good.”

This claim is so at odds with Mises’ words that one is left breathless at its sheer daring. Mises never denied that interest is a market phenomenon. The whole point of his business-cycle theory is that deviation from market rates of interest by means of artificial credit expansion leads to malinvestments that culminate in a bust.

Mises does not say interest is “a natural consequence of not having a present good.” Merely not having something yields no natural consequence. Mises says people prefer a good in the present to the same good in the future, such that they would opt for the future good only at a premium. This premium reflects their time preference, or their discount of the future. Interest rates that arise on the market reflect these time preferences of individuals in society.

To say that Mises did not believe interest was a market phenomenon because its origins lay in individuals’ time preferences is like saying he didn’t believe prices were a market phenomenon because their origins lay in individuals’ subjective valuations. In each case, the market takes a subjective factor (individuals’ value scales in the case of prices, and individuals’ time preferences in the case of interest) and gives it objective expression – market prices in the former case, and the interest rate in the latter case.

OK, everything Tom says is perfectly true, but I think I get what Jaitly means. There are several places where Mises goes out of his way to beat down the conventional understanding of interest rates. I’m paraphrasing, but inHuman Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc. Instead, Mises says interest is due to time preference, which flows apodictically from the fact that humans act.

Puhleez, Bob. First what kind of critique is it when you write this:

I’m paraphrasing, but inHuman Action Mises says that the interest rate doesn’t equilibrate the supply and demand of loanable funds, that it’s not the price of borrowing money, etc. etc.

How can one debate with you, when you are not referencing Mises directly and are merely "paraphrasing"?

Let's have a reference so we can see what Mises wrote and the context in which it was written.

Further, just because Mises spends considerable time explaining the origin of interest rates in time preference, it does not mean he doesn't understand that the market interest rate is formed, well, on the market---which is what Jaitly claimed . I quoted Mises saying as much in my original critique of Jaitly:

On a market, which is not disturbed by the interference of such an "inflationist" banking policy, interest rates develop at which the means are available to carry out all the plans and enterprises that are initiated. Such unhampered market interest rates are known as "natural" or "static" interest rates.

Given some of Jaitly's other nutball conclusions, .e.g, that Mises rejected subjectivism,, I find it odd to go out of the way to attempt to stretch truth from Jaitly's comments. What is the point of this? I think it would be obvious that Mises would not reject the idea that interest rates are formed on the market by the ranking of how much quantity supplied for money and quantity demanded for money exists at different interest rates---even given that those rankings are caused by time preference. Jaitly appears not to understand any of this or he wouldn't have made the absurd comment that Mises doesn't believe interest rates are formed on the market, which in the paragraph I quote above, it's obvious that he does.

Murphy's second criticism of Woods also reads into Jaitlly comments things that Jaitly did not actually say. This time Murphy, however, uses his "reading in" to attack Jaitly.

I just don't get all this reading into Jaitly. If Jaitly states a position let Jaitly explain how he gets to it rather than creating a first derivative of Jaitly's comments that Jaitly may or may not agree with. From what I can tell Jaitly and Keiser aren't doing any deep analytical work. They are just picking stuff off willy nilly to support their case. For example, Woods has now conceded on the minor point that Murphy makes as to what Jaitly may have meant when Jaitly talked about gold and gold substitutes---a mark of an honest scholar. BUT it should be noted that Murphy after reading into Jaitly on this second point buries Jaitly for it, if indeed Jaitly was even thinking this way.

Fortunately, Max Keiser has come to the forefront in an new post to make my point that Keiser (and I believe Jaitly) just pick stuff off without any reference to deeper thinking, since Keiser is now using Murphy's critique to attack Woods as a fake, when the point of Murphy's "reading in" critique is that Jaitly is more confused than even Woods thought. Keiser mentions nothing about Murphy's critique of Jaitly, simply that Woods has conceded to Murphy on a point. Not that the point is that Jaitly is even more confused than Woods proposed! Bottom line: Keiser is just ripping stuff off here to advance his case, without putting it in context. My claim is that Keiser and Jaitly do the same thing when they attack Mises. Thus it makes no sense to "read in" to what they are saying, as though they are attempting to think out long threads of analysis. If they are doing show, lets see the analysis from them instead of their unreferenced charges against Mises. By "reading in" as to what they might actually be thinking is giving them to much respect, given the absurd conclusions they are making. They are either very confused or purposely distorting Mises thought, but there is no logical analysis going on here.

25 comments:

The suggestion that I’ve made ad nauseam is to remember that no anti-Austrian and/or anti-libertarian EVER understands even the basic concepts of economic calculation and/or the NAP. Our opponents’ "critiques" are ALWAYS uninformed, superficial, purposefully dishonest and downright embarrassing.

Our response to these “critiques” should never be “OMG, did you see what ___ wrote about us?” Our response should always begin with “No anti-Austrian and anti-libertarian EVER understands even the basic concepts of economic calculation and/or the NAP. Our opponents’ critiques are ALWAYS uninformed, superficial, purposefully dishonest and downright embarrassing. The latest “critique” by _______ continues that tradition”.

BTW, has anyone seen the latest refined and scholarly “critique” of Ron Paul and “the gold standard” in The Atlantic?

Robert... can you get Sandeep Jaitly or Max Keiser on your show? I watch Max on his weekly video segments and he knows his stuff but he has no worldview that I can tell. He supports greenbackers like Ellen Brown yet he also thinks gold is the one true money (along with silver). If you watch him long enough he will take both sides of an issue just to get in line with the latest fad.

Mcfrandy, you're delusional. Murphy is probably one of the most Rothbardian libertarians at LvMI. His take on libertarian private law and security theory is nothing short of superb, even more so when you consider that he conforms it to be compatible with his own ethical beliefs. I really don't see any substantive examples to show that Dr. Murphy is a "dubious representative of libertarianism". I'd say that he is a model of libertarian thought, especially anarchist libertarian thought.

Now, you could say that there are some questions regarding his economics, after all his dissertation rejects the theory of time preference in determining the rate of interest. However, when one looks at his total output one sees that Dr. Murphy is purely Austrian-- in methodology, most certainly Austrian. Further, he's probably one of the few people at LvMI that is extremely knowledgeable of mainstream theory and Austrian theory. When I think of Austrians who fully understand their opponent's views, I think of only three names: Garrison, Herbener, and Murphy. This isn't to take away from what the other folks at LvMI do, they all have their areas of expertise, it is only to say that they just aren't as knowledgeable of mainstream economics as guys like Murphy.

Murphy is not "dubious" with respect to representing libertarianism. That's just a no balls way of stating your dislike for him. Murphy does; however, need to understand the tactics involved and refrain from giving the "other side" free ammo. He should know better......perhaps communicated privately would have been better.

That wasn't ammo, that was a "Tom, you may have interpreted this incorrectly, but Jaitly is still completely wrong" statement. It's only "ammo" because Keiser doesn't read past the title, just like he did when he read The Theory of Money and Credit.

Here's the thing I don't get in this discussion. Isn't "time preference" just a specific form of "demand?" It can be useful to classify forms of demand. Not all demand is "time preference," but "time preference" is a form of demand. So wouldn't Mises just be trying to expound on a specific form of demand rather than trying to downplay the relationship of interest rates to supply and demand?

You should be good on your time preference as long as they don't adjust your Higgs field. If they do, all bets are off. Then again, it's not all bad... it's like a negative interest rate policy. You owe less "interest" each day of amortization. That's why a Large Haldron Collider costs so much to build while functioning in a similar fashion to sixteen bankers lunching in The City while setting LIBOR rates. Imagine that tab (notionals included).

Bob, this is how 95% of Keiser viewers sound on my site. Mises died in 1973, and this guy thinks he advised Reagan. He can barely write a coherent sentence, and has no idea what the Austrian School is.

From Stacy Herbert of the Keiser Report:"I asked Tom on twitter and he stopped the conversation after I asked; Sandeep Jaitly was also in on the tweet as Sandeep and Dr. Fekete have agreed to debate both Tom Woods and Lew Rockwell on the issues raised; but apparently Tom does not want to debate the economic issue at hand but perhaps instead he wishes to debate whether or not he is a charlatan; I wil provide a blog post with the links for that; a 13 minute debate on whether or not he is a charlatan is not really that interesting to my mind; at least not until after the debate over Mises not being real Austrian school is settled or at least debated anyway"

He didn't refuse to debate, he did say that he won't go on Max's show, but then I don't know of any serious intellectual who would go on that show, let alone to be berated by the host. He was clear that if Max wants to speak/debate with him, that he is more than happy to do so on a suitable third-party outlet. However, he has been clear that he isn't going to do anything until Max answers the questions that Tom asked him at the very beginning of this whole ordeal.

This whole thing started when Max made specific claims. Dr. Woods questioned those claims with specificity. Tom isn't burdened to prove anything here, because Max still hasn't addressed the original issue. Instead he's gone on a manic tirade against anything Austrian, flinging poo and acting like a little bitch the entire way. Tom has already won quite clearly, Max just needs to concede the point.

The funny part is that Max and his corner don't even realize that they've been absolutely thrashed, and the more they fling poo and hurl insults, while ignoring the original challenge, the dumber they will look to any sane person watching this whole thing unfold. I think that Keiser is going to lose a huge chunk of his following, save a handful of diehard fanatics.

I like Max because he can get to the bottom of banker and broker scam's quickly. I don't have to like his schtick but I do gain from his insight to the broker world. Just like William K. Black, and to some extent Elizabeth Warren, they have a nose for getting to the prosecutorial bottom of things. I abhor Warren's politics. Mr. Black took part in one of the better OWS protests in LA with the "teach-in" as he tried to direct their anger towards the true fraudsters. http://www.youtube.com/watch?v=N_AuvLTJNh0

I think Peter Schiff is a great economist but his myopia on inflation, which is where we all know it will end, prevents him from gleaning profits on the peaks and valleys along the way. Thus Peter is not the greatest investor. Mish may not be as good of an economist but he knows how to profit because he is not fixated by a dogma and is a better investor. Max is a good investigator but he should limit himself to what he knows best.

Sadly Max has even resorted to lies which I can never defend. It is very sad. Lauren Lyster is better anyway although it would be nice to have two people with integrity exposing the frauds. Both generally have good guests. Mike Maloney, Mish, Reggie Middleton, Jim Rickerts, Neil Barofshy etc.

And FYI, I would rather have Lew Rockwell, David Gordon, or Robert Wenzel represent Austrian economics in a debate with Krugman than Bob Murphy. Bob Murphy and the Harvard Economics Dean could jointly moderate.

Yeah sometimes I don't know about Bob Murphy. He gives the other side too many concessions sometimes. Like his attempt at even handedness goes a little overboard. I don't understand the motivation for that. But sometimes his analysis is brilliant.